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Plant closed by ammonia discharge suffered direct physical property loss: Court

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Plant closed by ammonia discharge suffered direct physical property loss: Court

The sudden discharge of ammonia that temporarily closed a New Jersey-based manufacturer's plant qualifies as direct physical property loss or damage under New Jersey law, a federal judge has ruled.

Newark, New Jersey-based juice cup manufacturer Gregory Packaging Inc. sued its commercial property insurer, Hartford, Connecticut-based Travelers Cos. Inc., in 2012 for denying coverage on claims stemming from a 2010 incident at its packaging facility in Newnan, Georgia. The company was forced to shutter the facility for several days after a contract worker was severely burned by liquidized and gaseous ammonia accidentally released from the facility's refrigeration system.

In his 15-page opinion issued Tuesday, Judge William Walls in the U.S. District Court in Newark, New Jersey, granted Gregory Packaging's motion for a partial summary judgment declaring that the release of the ammonia and the subsequent shut-down of the facility constitute “physical loss of or damage to” the company's property, absent a clear definition of the phrase in the terms and conditions of its property insurance policy with Travelers.

“There is no genuine dispute that the ammonia release physically transformed the air within Gregory Packaging's facility so that it contained an unsafe amount of ammonia or that the heightened ammonia levels rendered the facility unfit for occupancy until the ammonia could be dissipated,” Judge Walls wrote, adding that the loss of use of the facility met the requirements for direct physical loss under New Jersey insurance laws.

“The court recognized that when a key policy term such as 'direct physical loss or damage' is not defined, the ambiguity must be construed in favor of the policyholder, and that an accident that renders a building unfit for occupancy and in need of remediation constitutes physical loss by any reasonable understanding of the term,” Robert Chesler, shareholder at New York-based Anderson Kill P.C. and counsel for Gregory Packaging, said in a statement released on Wednesday. “That's good news for policyholders.”

Judge Walls noted that Gregory Packaging must still demonstrate in court that the release of the ammonia occurred as the result of a covered cause of loss, which Travelers has also challenged.

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